We look at the changing ownership of the big auction houses

EVER since Alfred Taubman, an American property mogul, appointed CSFB, an investment bank, to decide what to do with his controlling stake in Sotheby's, the art world has been rife with rumours of potential buyers. The name most frequently mentioned is Bernard Arnault, the boss of LVMH, a stable of luxury brands which already owns Phillips, a smaller British auction house. If Mr Arnault were to buy Mr Taubman's stake, the world's two biggest auction houses, Sotheby's and Christie's, controlling between them more than 90% of the art-auction market, would be in the hands of Frenchmen.

Christie's was bought in 1998 by François Pinault, the boss of Pinault-Printemps-Redoute, a French conglomerate, and Mr Arnault's arch-rival. Soon afterwards, Mr Arnault looked at Sotheby's but decided it was too expensive. Instead, he bought Phillips in November 1999, with the aim of thrusting it into the premier league.

Since then, he has been spending lavishly on advertising, unusual sales methods and high-profile hires. Sharon Stone turned up at a Phillips auction in New York in return for a generous donation to a charity she supported. Simon de Pury, a respected former chairman of Sotheby's Europe, was brought in with Daniella Luxembourg, a former deputy chairman of Sotheby's Switzerland. Both were armed with impeccable address books; in their honour, the firm was renamed Phillips, de Pury & Luxembourg.

Mr Arnault is also exploiting to the full all the tricks that auctioneers like to use to manipulate the outcome of art auctions. Most auction houses give guarantees (a fixed amount granted to the seller), set a minimum price or reserve below which an item cannot be sold, sell unsold items over the counter, and take bids “from the chandelier”—ie, from a fictional bidder. But Phillips is pushing these practices to new depths in its fierce efforts to dethrone the duopoly at the top. “High guarantees are an easy way to win business if you do not want to make a profit,” says Edward Dolman, chief executive of Christie's. “It is distorting prices,” complains Robin Woodhead, chief executive of Sotheby's, for Europe and Asia.

Guarantees, which are perfectly legal, rarely pay for auction houses; and they also run counter to the whole idea of an impartial auctioneer. But they certainly help to attract sellers. If an item sells for less than the guarantee, the auction house pays the difference; if it goes for more, the proceeds are usually split between auction house and seller. By giving a guarantee, the auction house has “an interest”, as it says in small print in catalogues. It is, in effect, auctioning its own property.

Phillips's strategy of generously underwriting first-rate sales has won it this year's most coveted consignments. In May, Mr de Pury auctioned pictures in New York that belonged to Heinz Berggruen, a much-respected art dealer in Berlin whose son works for Phillips. Alongside the Berggruen collection went a consignment by Henry Kravis, a financier and, ironically, a board member of Sotheby's. Phillips also bagged a prize collection of about 80 works of art belonging to the heirs of Nathan and Marion Smooke, a wealthy couple in Los Angeles. These will go under the hammer in New York on November 5th.

Phillips's tactics for breaking through to the top have been both risky and expensive. The Berggruen pictures sold for $71.2m and probably failed to cover the guarantee, said to be more than $80m. A large Van Gogh landscape and a pretty portrait of a woman by Renoir were left unsold. The guarantee for the Smooke pictures is said to be $200m, even though the lower estimate for the collection is $140m. This is another risky bet, particularly given the global economic slowdown, which is already affecting the market.

“We are building market share,” says Mr de Pury. But is there enough business at the top for three? Mr Dolman thinks there are only about 50 private collectors who buy works of art for $20m or more. Christie's, like its competitors, considers the middle market its safety net, in particular when the economy goes sour. It has been doing well thanks to Christie's South Kensington, its London saleroom for the middle market. Sotheby's is launching a new saleroom in west London, at Olympia on September 3rd, to reclaim some middle-market share from Christie's.

Mr Arnault recently bought Bonhams & Brooks, a British auction house that traditionally caters to the middle market. Unexpectedly, he did not merge it with Phillips, but formed two separate entities. Phillips, de Pury & Luxembourg is to focus on the best art, jewellery and furniture, while Bonhams looks after the rest.

This could clear the way for a merger of Phillips and Sotheby's. Mr Taubman's stake in Sotheby's is worth far less than it was two years ago when Mr Arnault last looked at it. Sotheby's was ordered by a court in New York in February to hand back $286m to sellers for its part in a commission-fixing scandal with Christie's. This, and misadventures with its Internet strategy, contributed to a loss of $8.3m in the first half of this year. Now there are rumours that it is to announce cuts of up to 20% of its workforce (around 400 people) after America's Labour Day weekend, as a prelude to selling the business.

Mr Arnault may eventually find it less expensive and risky to buy Sotheby's than to go for market share by other means. The age-old Sotheby's-Christie's battle will then be an all-French affair.